As the second quarter of 2023 approaches, the question marks that marked the beginning of this turbulent year are becoming more and more like exclamation marks. Fog may still hang over Israel’s tech industry, but the challenges are more visible. As we enter the Easter season, the Globes sat down with CEOs of tech companies to better understand their challenges in 2023: What motivates them and what needs to be done to ensure that new investment continues?
Ran Cohen is a partner in Amit, Pollack, Matalon & Co., a high-tech venture capital and merger and acquisitions practice.
The global economic instability combined with the current political situation in the wake of the proposed judicial reform legislation in Israel has created uncertainty about the future of investments in Israel, specifically in Israel’s high-tech industry. Despite the reservations of many, we are not seeing a dramatic impact on early stage investments; And we can expect a successful year for the companies in their early stages.
Unfortunately, we cannot say the same about more mature companies that faced the consequences of raising capital at a very high valuation before the crisis began and are now looking for financing. The best solution for these companies is to use secure/convertible loan agreements that will currently allow them to avoid massive dilution. Another trend that we’re seeing more often is the return of investment lending as an alternative financing solution for growth companies. Last but not least, we expect more M&A transactions with the sole purpose of buying IP or Acquihire transactions.
Adi Weitzhandler, co-founder of Valoo, a secondary platform for private equity
As we move into 2023, evaluating private technology companies presents a tricky situation. In a period of increasing capital costs, inaccurate valuations can have serious consequences for returns. Valuation inaccuracies can make the difference between exceptional returns and losses, especially for technology companies.
Valuing a private company is fundamentally different from evaluating a public company in that investors do not have access to instant reports, specific multiples, industry margins, published benchmarks and analyses, and comparable public data points. Therefore, investors should use other tools and methods to analyze the value of the shares they own or seek to buy.
In today’s market, IPOs are expected to take longer, and revenue and its growth rate have become key factors for evaluating technology companies. Total and projected revenue are key indicators for estimating a company’s value and should be evaluated using the annual growth factor. In addition, investors should evaluate long-term sustainability, profitability projections under best and worst case scenarios, the company’s exit strategy, and multiples comparisons.
By leveraging these tools, investors can make informed decisions based on the data and take advantage of the opportunities it presents this time. In the world of private technology companies, accurate valuation is more important than ever, and the investors who can successfully navigate these turbulent times will reap the rewards.
Uday Ikan, CEO and Co-Founder, Veriti The cyber security landscape in Israel has become a global center of expertise and innovation, which is amazing. Being close to the most successful entrepreneurs and companies in the industry gives you a huge advantage in terms of knowledge and experience. It’s one of the best places to build a project and tackle the challenges along the way, especially given how mature the ecosystem is. Moreover, working with Israeli customers is also very beneficial, as they bring great experience and provide us with valuable feedback.
However, despite the advantages of being part of the Israeli cybersecurity landscape, our geographic remoteness from the United States can present challenges when it comes to GTM. In order to overcome this hurdle and succeed, we need to continue to communicate with the industry and the field and ensure that our ideas are in line with reality. From the beginning, we focused on assessing how our thoughts fit with what was happening in the real world.
The key is to balance the benefits of being part of this unique community while still being in the field as often as possible. This way, we can continue to grow and expand while staying in touch with the pulse of the industry.
Djanet Verid, CEO, Smart Agro
Three months of turmoil in the Israeli economy has had some impact on the agricultural and food technology ecosystem in Israel. Israel is the world leader in these areas. The Israeli presence at the Agritech and Food Technology Conference in San Francisco was significant and strong. So far, we have seen the beginning of the impact on fundraising from non-Israeli funds, as they have stated that they are waiting for political stability or asking companies to invest in non-Israeli entities.
Nor have corporate valuations, in general, declined significantly as Agritech companies have been priced according to their performance prior to the global economic downturn. Financial opportunities to invest in Israeli Agritech and food technology companies remain attractive, and I believe the investments will continue. There is a huge demand for solutions to the climate crisis and to feed the world.
Gal Ringel, CEO and Co-Founder, Mine
One of the biggest challenges that Israeli high-tech companies face today is the high employee turnover rate. When all companies invest heavily in the employee experience and employee brands, the growing feeling among employees in this ecosystem is that the “neighbor’s grass” is always greener. It is unfortunate that on more than one occasion, this is not actually the case. At Mine, we give our people real influence, and each of them knows that they influence the product and the company in a big way. This is how we keep turnover lean.
Yinon Dolev, Head of the Sombo Digital Lab in Israel and Europe
The challenge for the Israeli technology sector is to maintain its position as the highest innovation center in the world. Other countries are catching up by investing in talent and building local technology ecosystems. Since there is a shortage of skilled workers in certain areas of the high-tech industry, it is necessary to accelerate education in STEM subjects. For example, encouraging more girls as well as minorities to enter computer science and engineering programs in high school.
The country’s political environment is another challenge that the Israeli tech ecosystem faces. Israel has always been a business-friendly country and has maintained its stability even during times of war, but in recent months there is a general sense of uncertainty. The repercussions of this situation are something that policy makers must consider as they plan for the future of the Israeli economy.
Anna Moshe, Partner, Group Head of IL Emerging Companies & Venture Capital Practice at the law firm Pearl Cohen
It seems that the only “beneficiary” from the war in Europe is the State of Israel, to which more than 70,000 immigrants from Russia, Belarus and Ukraine arrived last year.
The majority of these immigrants are under the age of 40, have higher education, are eager to build their new home in Israel, and many of them hope to find their place in Israel’s tech industry.
The only problem for these immigrants is the lack of social assets in Israel – they did not serve in the army with us, did not attend universities in Israel, and their social media does not interact with our universities. Moreover, since there are many immigrants, they tend to “lock up” and spend time together.
So, what is Israel’s high-tech mission/challenges for 2023? Incorporating as many immigrants as possible into our high-tech system, giving access to our social origins, and smashing the former Soviet “casting style.”
Make the banking system allow investors from post-Soviet countries to transfer their money for domestic investment needs and allow them to act from their new home – Israel.
Published by Globes, Israel business news – en.globes.co.il – on April 9, 2023.
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